AAII Sentiment Survey: Neutral Sentiment Hits a 9-Year High

Posted on May 1, 2014 | AAII Survey

The percentage of individual investors describing their sentiment about the direction of stock prices as “neutral” rose to its highest level since April 14, 2005, in the latest AAII Sentiment Survey. This is occurring as both bullish and bearish sentiment remain below 30%.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 4.7 percentage points to 29.8%. This is the third time in four weeks that optimism is below 30%. It is also the seventh consecutive week with a bullish sentiment reading below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.3 percentage points to 40.8%. This is just the second neutral sentiment reading above 40% in the past nine years, and, as noted above, the highest reading since April 14, 2005. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 3.4 percentage points to 29.4%. The historical average is 30.5%.

The streak of consecutive above-average neutral sentiment survey readings now stands at 17 weeks. This is longest such streak since a since a 24-week stretch between January 28, 1999 and July 8, 1999. Bullish sentiment’s current streak of seven consecutive weeks of below-average reading is the longest since a 13 week stretch between August 30 and November 22, 2012. Bearish sentiment is below its historical average for the 40th time out of 52 weeks.

Neutral sentiment remains at an unusually high level, or more than one standard deviation above its historical average. Even though the Dow Jones industrial average set a new record high yesterday, uncertainty about the short-term direction of stock prices continues to exist. Keeping some individual investors optimistic is the market’s resilience, economic expansion, the Federal Reserve’s tapering of bond purchases and low interest rates. Keeping some individual investors pessimistic are the events in Ukraine, the slow rate of economic expansion, Federal Reserve tapering and frustration with Washington politics.

This week’s special question asked AAII members what factor or catalyst is creating the biggest amount of uncertainty for how the stock market will perform over the next six months. The Ukrainian crisis was mentioned the most, named by more than 24% of respondents. Geopolitics was cited by an additional 13% of respondents. On the domestic front, U.S. politics (particularly the upcoming November elections) were named by 14% of respondents, while Federal Reserve policy and the state of the U.S. economy were each cited by 14% of respondents.

This week’s AAII Sentiment Survey results:

  • Bullish: 29.8%, down 4.7 percentage points
  • Neutral: 40.8%, up 1.3 percentage points
  • Bearish: 29.4%, up 3.4 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey